Company:
Deutsche Börse
Business: A German stock exchange company. They have five business areas: Cash Market (offering services of listing, trading and clearing services), Derivative Market (same services as for the Cash Market), Market Data (data feeds, news services, indices and exchange infrastructure), Post Trading (delivery of securities, custody of securities and financing services) and finally Information Technology (software development, internal information technology).
Active: They are present in over 110 countries so they must be considered to have world wide activity.
P/E: 22.1
The P/E of Deutsche Börse is far, far too high for me with 22.1 and the P/B is also too high with 3.5 which gives a clear no go from Graham. Their earnings to sales are great with 22% but it is worse compared to last time we looked at them and the same goes for ROE that is now down at 15.8% which is still ok though. The book to debt ratio is worse than the worst banks with only 0.02 which definitely scares me but I guess I am over reacting on that. In the last six years they have had a yearly -3.7% growth which improved slightly compared to last year so at least the figure is improving but it is still bad and we receive a motivated P/E of 8 to 10. Last time I made the analysis I calculated with that their growth should at least be as big as the classical stock market growth but that is simply a wrong conclusion. There is no such direct correlation between the performance of a stock exchange and the increasing value of the stock market. Therefore I down adjusted the motivated P/E to be based on their growth and then we end up with Deutsche Börse being highly overvalued on the market today (even though the share price has dropped, the earnings dropped even more and the P/E has been shooting yet higher compared to my last analysis). They pay a fully acceptable dividend of 3.8% but it corresponds to 85% of their earnings so they better start improving their earnings very soon or the dividend should be down adjusted.
Conclusion:
Graham as well as I say no to Deutsche Börse as it is today. the P/E is too high, the P/B is too high, the ROE is acceptable but then the debt to book ratio is crazy low and I am scared that unless they increase their earnings they might be forced to decrease the dividends and that tends to hit the share price hard. So I keep my fingers away from this one.
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